What do housing prices, gourmet coffees and boat sales have in common? They all recorded gains in 2012.
Since the economy tanked, we have held that a recovery of housing would be a necessary precursor to healthy increases in boat sales. Well, home prices for the month of December were up 8.3 percent from a year ago, the biggest increase since May 2006. In 2012, 46 of 50 states registered housing price gains.
What’s put the wind in housing’s sails? There’s a significant drop in foreclosed homes and reduced distressed properties along with low inventories of new or existing homes available. If that sounds familiar, it’s because it’s similar to our industry — fewer repos or distressed boats on the market and low inventories of used or new boats.
Now, while that news is encouraging, it’s important to note that overall home prices are still down about 26 percent from their peak in April 2006. That said, Michelle Meyer, an analyst for Bank of America-Merrill Lynch, has forecast another price rise of 5 percent this year with new housing starts up 25 percent.
Other housing analysts believe we’re actually headed for a housing shortage. They compare housing starts to birth rates. Housing starts tanked during the Great Recession, but birth rates continued to climb. They see a large gap between new household formations and new housing starts and it should trigger a housing boom in the coming years. That will be good for the economy and for boating.
Coffee might not be a highly regarded indicator of economic activity, but it depends on how you look at it. The Specialty Coffee Association of America reports that sales of specialty coffees were on the rise again in 2011, reversing a drop in 2010 attributed to the recession.
Of the $32 billion U.S. coffee market, specialty coffee represents 37 percent. In 2011, consumption rose from 31 percent to 40 percent among 18- to 24 year olds and up to 54 percent for 25 to 39 year olds. Both numbers are expected to rise again when the 2012 data is finally compiled.
What’s notable about the return to specialty coffees is the trend that consumers are again willing to pay more for a cup of coffee just because “it tastes better.” According to one report, the specialty drinkers don't always know or even care why it tastes better, but cite the "taste, flavor and aroma" as decisive factors to spend more money. That display of attitude — spend more because they just like it — is exactly what we look for in prospects for boat sales. But there’s more.
Specialty coffee drinkers are also drawn by the “experience.” Coffee house outlets have realized that providing a social setting increases sales. These coffee drinkers want a great atmosphere with ambiance that makes them feel relaxed, with time to savor a cup.
It’s the experience Howard Schultz, CEO of Starbucks, the largest coffee house company in the world, is said to have witnessed in the coffee houses of Italy, where people gather over coffee for social reasons. It became the very successful Starbucks business model.
In general, we are all drawn to places that exhibit a pleasurable environment. And it’s a consideration we should keep in mind when we look at our boat dealerships and marinas. Just as with coffee, consumers will pay more if they feel it “tastes” good to them.
Finally, on Monday, USA Today reported the median estimates from 46 economists believe the economy will “shift into high gear this summer and then grow for the next nine months at the fastest pace in three years.” They predict monthly job gains and rising home and auto sales as many households have significantly reduced the debt that has slowed their recent spending.
It’s been a while since we’ve seen these signs that indicate the trend for improving boat sales will continue to build on last year’s 10 percent increase.